The Malta Independent 25 February 2020, Tuesday

Air Malta plans to double profits from ancillary services, introduce complete holiday packages

Karl Azzopardi Sunday, 9 February 2020, 11:00 Last update: about 16 days ago

Air Malta plans to double the profit it makes from ancillary services, such as in-flight sales, from eight per cent to 16 per cent, said Economy Minister Silvio Schembri, speaking on this week’s edition of Indepth. Most of the interview focused on the national airline, with Schembri talking about the airline’s targets, challenges and plans for the future. He said that a number of strategies and initiatives are underway that will promote Air Malta as a major source of economic growth for the country.

“As a government, we cannot consider Air Malta as a normal airline. It is a strategic company which is an important part of our country’s economic growth,” said Schembri, when asked about recent reports that the airline will be registering an operational loss of €30 million for 2019.

Air Malta had reacted by saying that the report was not based on its audited accounts, which have not yet been finalised.

The Minister said that, in order to answer this question, one must first understand the history of Air Malta. In 2012, he said, a Nationalist government had launched a five-year restructuring programme that saw €250 million injected into the airline and the selling-off of assets. More recently, there was a failed attempt to form a strategic partnership with Alitalia.

“Eventually, other strategies were introduced, aimed at achieving growth by evaluating new markets and new revenue streams, and this is the process we are going through at the moment,” he said.

Two years ago, said Schembri, Air Malta experienced an increase in revenue and a reduction in costs, making it more cost-efficient which, in turn, enabled it to adopt a more long-term perspective that promotes it as a major asset to Malta’s economic growth.

He pointed out, however, that for Air Malta to live up to this role, it had to look beyond its own numbers and consider factors that might benefit the country rather than the company itself. This includes an assessment of the relations that new routes will create with other countries and seeing whether it would be ideal for Malta to invest in them. Over the past two years, with the introduction of new routes, Air Malta has increased the number of passengers it brought to Malta by 500,000.

 

Increasing fuel efficiency

The Minister also mentioned that Air Malta is going through a process of long-term investment by replacing its fleet with more fuel-efficient aircraft, which will reduce fuel costs by 17 per cent. He noted, however, that fuel prices remain volatile, with Air Malta paying €12 million more than expected last year. This is something over which the airline has no control, he said, but added that hedging agreements help.

In addition to all this, the Minister said that there had also been other costs, such as industrial action on the part of pilots and cabin crew, which amounted to about €3.5 million. “Air Malta is here to stay, but we have to look beyond its traditional role as a carrier of passengers, and consider different revenue streams.”

Asked if things are moving according to plan, Schembri said that they are.

 

New revenue streams

“We have spoken to foreign experts who told us how to plan strategically and reduce costs but also, above everything else, said that we had to think more creatively about revenue streams,” said Schembri. This includes doubling profits generated by the airline’s ancillary services, such as inflight sales, which represent eight per cent of Air Malta’s income. The target is to double this to 16 per cent.

He also mentioned luggage payments, which other airlines had picked up on, but where Air Malta is still lagging behind.

The Minister said that Air Malta will also be offering its engineering services to other airlines. “We have very good engineers working with Air Malta, so we should offer this service to the other airlines that make use of our airport. We have already started providing such services to Qatar Airways and we can expand this to other airlines. It might not be feasible for other airlines to set up their own service facilities in Malta, so Air Malta can fill that gap, thus creating a new source of revenue.”

He also mentioned the idea of increasing code-sharing agreements, whereby Air Malta enters into agreements with airlines flying to destinations it does not serve and getting a percentage of the sales. Currently, Air Malta makes €20 million from such agreements, but there is the potential to increase this by a further €10 million.

 

Harnessing technology

The Minister said that there are also investments planned for technological improvements, including Air Malta’s pricing method. With the introduction of low-cost airlines, the sector has become very competitive and complex.

“I believe that, with current technologies such as artificial intelligence and marketing optimisation, we can improve in this area as well,” he added.

In line with technological advancements, Air Malta will soon begin offering complete holiday packages, which will include not only the cost of the air ticket but also car rentals, hotels and restaurants, etc.

“This is something that will be on a digital platform and will be open to everyone. A number of stakeholders are already showing interest and, in addition to widening the local market by opening a digital platform for companies to offer such services, Air Malta is opening revenue streams for national airlines.”

 

The long-haul market

Asked about talk of long-haul flights to destinations such as India and New York, the Minister  said that certain modern aircraft are now able to serve such routes.

The long-haul market has been dominated by large aircraft (wide-bodied) which are used by major airlines such as Qatar Airways. To date, Air Malta has used smaller aircraft that cannot be flown for such long distances, which is why it has always only travelled within Europe.

In the coming years, a new type of plane – known as the XLR – which is a similar size to the planes used by Air Malta, will be able to cover longer routes. Noting that Air Malta does not own its aircraft, but rather leases them, Schembri said that using such planes in the future could be a possibility. He added, however, that this is a risky sector and no final decision has been made as to whether Air Malta will be heading in this direction.

“However,” the Minister added, “this subject is a part of our long-term plan. Our priority at the moment is to strengthen Air Malta’s income in the short to medium-term.”

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